Fannie, Freddie Housing Finance Loan Cap May Shrink

More evidence has appeared suggesting housing finance loans purchased by Fannie Mae and Freddie Mac are poised to get a bit smaller.

Currently housing finance loans in most markets cannot be larger than $417,000 if they are going to be sold to one of the two secondary mortgage giants or $625,500 if they are made in certain very expensive housing markets.

Those limits have been under downward pressure for some time, but now the Federal Housing Finance Agency, Fannie and Freddie's regulator and, in effect, management, has signaled that it is open to seeing them lower.

“The Federal Housing Finance Agency shares the administration’s view that a gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers’ mortgage risk exposure, shrinking the footprint of Fannie Mae and Freddie Mac in the marketplace, and expanding the role of private capital in mortgage finance,” Dunkle said in response to a media inquiry.

“FHFA has been analyzing approaches for reducing Fannie Mae and Freddie Mac loan limits across the country, and any such change would be announced with adequate advance notice for implementation on Jan. 1, 2014,” she said.

Fannie and Freddie loans in high-priced markets used to be even higher, jumping up in 2008 to $729,750 as regulators sought to support the trembling real estate market but then moving down again to $625,500 in October 2011, although the Federal Housing Administration will still insure housing finance loans up to the previous high cap.

If the FHFA follows through, the limit change could come as the secondary market for loans too large for Fannie or Freddie – so called jumbo loans – is still recovering from the impacts of the housing finance crisis.